Fannie Mae Improves Energy-Efficient Mortgage Program
By Kerry Curry | April 14, 2016
Fannie Mae recently made changes to its energy-efficient mortgage loan program to encourage homeowners to make energy-saving enhancements to their homes.
The newly rebranded program – HomeStyle® Energy – provides homeowners opportunities to finance new energy improvements or pay off debt they used to increase the energy or water efficiency of their homes. It also streamlines the process for homeowners who need a small amount of money – up to $3,500 – to weatherize or improve the water efficiency of their homes.
Energy improvements can involve a wide variety of projects – such as adding insulation, energy-efficient windows, or water saving devices. Solar panels and other innovative energy saving devices may also be eligible under HomeStyle Energy.
HomeStyle Energy is available on one- to four-unit principal residences, one-unit second homes, and one-unit investment properties.
Program Adjusts Refinancing Rules
Jodi Horne, a senior risk manager with Fannie Mae, said new flexibilities include the ability to refinance previous debt taken out for energy improvements. For example, homeowners can now take a limited cash-out – up to 15 percent of the home’s value – to pay off consumer debt, a home equity loan, or Property Assessed Clean Energy (PACE) lien used to finance energy efficiency improvements.
In the past, this would have required a full cash-out refinance, which may have made the cost of refinancing more expensive. Borrowers also may benefit from greater flexibility under a limited cash-out refinance when paying off energy improvement debt.
Adding Improvements to a Refinance or New Purchase
HomeStyle Energy allows a borrower to use up to 15 percent of the “as completed” appraised value of the property for new energy improvements under either a refinance or a new purchase transaction.
For example, a borrower with a home valued at $100,000 could receive $15,000 – 15 percent – out of the mortgage transaction to make energy improvements. These could include installing energy-efficient windows and doors, adding weather stripping to improve the home’s insulation, replacing or resealing the air ducts, and replacing the HVAC or hot water heater with systems that are more energy-efficient.
The lender can deliver to Fannie Mae before completion of the energy improvements. And there is no lender recourse for delivery prior to the completion of the improvements.
Fannie Mae requires the lender to place the funds for the improvements into escrow and to get a certificate of completion once the new energy improvements are made.
HomeStyle® Renovation is the only other Fannie Mae renovation product that allows a lender to deliver a loan prior to completion of renovations. It requires recourse and special approval.
The revised HomeStyle Energy program has no such limitations.
“Any Fannie Mae-approved lender can take advantage of this program,” Horne says.
Plug and Play
Horne describes HomeStyle Energy as a “plug and play” option for lenders and homebuyers.
“They can combine HomeStyle Energy improvement financing with just about any product that Fannie Mae offers,” she says. “If a borrower is doing a standard purchase or a limited cash-out refinance, they can add this as a component to that financing. If they are doing a HomeReady® loan, this can be combined with HomeReady,” she adds.
Likewise, in California and other high-cost markets, homeowners can use HomeStyle Energy with High Balance Mortgage Loans.
“We really want to highlight the fact that this is available to all lenders and for all programs,” Horne says.
Flexibility on Energy Evaluations
A borrower taking out new money for energy improvements under the program must get an energy evaluation prioritizing and recommending the most cost-effective energy improvements. Often, the recommendations will be for basic improvements – such as adding more or higher-quality insulation to improve the comfort of the home.
Recent adjustments to the program expand who can conduct the energy evaluation. In the past, evaluations were restricted to a Residential Energy Services Network (RESNET) certified energy rater. Fannie Mae has added energy assessments through the U.S. Department of Energy Home Energy Score program and through local municipalities or utility authorities.
Project analyst Alexandra Parisi says Fannie Mae wants to clear up any misconceptions that HomeStyle Energy is a niche mortgage product.
“The first thing most people think of is solar panels,” says Parisi. “But there are a lot of other improvements to a home that can increase its energy efficiency. These include adding energy-efficient windows and doors to better regulate the temperature of the home, or replacing an aged hot water heater with a more efficient model.”
The program targets homeowners who want to save money on their energy bills, improve the comfort of their home, or address allergy or health concerns.
“There are many reasons why this product may appeal to a consumer,” she adds. “Lenders need to understand the broad appeal of HomeStyle Energy to be able to have conversations with their customers about how the product could fit their needs.”
The National Association of Home Builders (NAHB) noted last year that builders are responding to more requests from homebuyers for energy-efficient features in new homes.
In a survey on what features builders planned to include in their homes this year, energy-saving features made the top 10, NAHB said. The number of energy-efficient home features on NAHB's list coincides with a growing focus on green building, the organization said.
Fannie Mae’s improved HomeStyle Energy product meets this growing demand from America’s homebuyers for energy efficiency.
Horne says, “HomeStyle Energy is a great opportunity for lenders to partner with homeowners in making their dream home more comfortable and energy-efficient for many years to come.”
Kerry Curry is a freelance writer for several Texas and national publications and is the former executive and magazine editor of HousingWire.